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Car tax bands explained

It seems like the UK government change the rules on car tax bands every year. The rules changed again on April 1 2018, and there will be another increase in April 2019, so here’s our guide on what you have to pay.

We’re sorry to say that road tax is one of the costs that comes with owning a car, but the rules keep on changing. After the big changes on April 1 2017, some new rules came into force on 1 April 2018 which include higher rates for higher polluting diesel cars.

What is car tax, or Vehicle Excise Duty?

Vehicle Excise Duty, or VED, is also known as vehicle tax, car tax, showroom tax, and road tax. It’s a tax which must be paid for most vehicles, which will be used or parked on public roads in the UK. The concept of VED was introduced all the way back in 1920.

How much road tax do I have to pay?

For the first year of tax, the amount is calculated differently to consequent years, and it’s based on the car’s CO2 emissions. From 1 April 2018, diesel cars which do not meet new emissions standards have moved up one car tax band.

Cars with 0g/km of CO2 emissions have to pay nothing in the first year, compared with cars emitting more than 255g/km, which will now have to pay £2,070 in the first year.

However, the first year's road tax is covered in the car's 'on-the-road' price, so it's absorbed into the overall cost of the car, rather than you having to shell out up to £2,070 on top of everything else.

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From the second year onwards, you pay one of three standard rates based on the car’s fuel type:

On top of that, if the car has a manufacturer’s list price of over £40,000, you’ll have to pay a new additional rate of £310 on top of the standard rate for five years. After this, the vehicle will be taxed only at the standard rate for that type of vehicle.

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Why did the government change the car tax system?

The government says the changes address unfairness in the current system, as reductions in the average CO2 emissions of cars mean owners of newer cars are paying less than owners of older cars.

It also says the supplement on cars of more than £40,000 will ensure those who can afford the most expensive cars make a fair contribution.

The 2017 changes resulted in some models seeing big jumps in their running costs – particularly cars with low emissions.

Before 2017, the Volvo XC90 T8 (a plug-in hybrid with emissions of less than 50g/km) paid no VED. Under the new system, the £10 first-year rate will be followed by annual bills of £450 (the flat rate of £140, plus the £310 supplement for cars with a list price of more than £40,000) for five years.

Even the zero-emission, all-electric Tesla Model S saw its running costs jump after April 2017. Although the car’s emissions mean it is exempt from VED, its list price means it is subject to the £310 annual supplement.

Cheaper low-emission cars have jumped in cost too. Any car with CO2 emissions of less than 100g/km paid no VED before April 2017, but under the new system, a car with emissions between 91 and 100g/km will pay £120 in its first year, followed by £140 each year after that.

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Have all cars seen a road tax increase?

No. Some cars will see almost no penalty under the new 2017/2018 system. For example, the high-performance Audi TT S has CO2 emissions of 168g/km and a list price just under £40,000. Under the pre-2017 system, its VED costs £300 in the first year, followed by annual bills of £210. Under the new system, the first year bill is higher – at £500 – but this is followed by annual bills of £140, so it only takes three more years for the overall VED bill to be lower.

Think carefully about options when you’re buying a new car

As the rate of VED is calculated on the list price of a car, that means the price includes any options you add. So if you’re buying a £39,000 car, and pop a few extras on, you could send its price over £40,000, and have to pay the £310 supplement.

Used car buyers also need to consider the new car tax rules…

The road tax rules that came into force in 2017 mean that used car buyers need to shop carefully, as the date a car is registered could have an important effect on its value. A car registered on 1 March 2017 could cost less to run than an identical car registered a month later, making the older car more valuable.

VED changes in 2019

On 1 April 2019, Vehicle Excise Duty (VED) will increase for the third consecutive year.

In last year’s Budget, it was confirmed VED rates for cars, vans and motorcycles would increase in line with inflation from 1 April 2019.

Motorists will have to pay between £5-65 a year more in the first year rates (covered in the car's 'on-the-road price'), depending on CO2 emissions and the age of the car.

For the first time however, VED cash will only be spent on the road network, which it wasn't before.

On top of that, the annual flat rate for petrol and diesel cars is increasing from £140 to £145, and hybrids will go up from £130 to £135. This affects cars covered by the new road tax system post April 2017. And for cars costing more than £40,000, the supplementary charge of £310 for years two-six, will increase to £320.